Low-paid jobs at risk from Labour’s tax increases on businesses
Cliff Nicholls runs two trampoline parks and indoor play centres: one in Tamworth in the West Midlands, the other in Bolton, Greater Manchester. He’s already feeling the pressure from the government’s latest budget measures and has been forced to abandon further investment plans.
“The national minimum wage increases coming in April, combined with the reduced thresholds for national insurance and the increased rate of employers’ national insurance, will have a very significant impact,” Cliff said.
To cut costs, he’s already made drastic changes. “We’ve had to take some fairly radical decisions, reducing our opening hours, making a senior staff member redundant because of rising business costs, including business rates and national insurance,” he added.
Cliff Nicholls
While policies like the National Living Wage (NLW) increase are designed to support low-paid workers, other changes could offset these benefits.
One major shift is the reduction in the salary threshold at which businesses start paying employer’s national insurance contributions (NICs).
Currently, employers begin paying NICs when an employee earns more than £9,100 per year. From April 2025, this threshold will drop to £5,000. At the same time, the employer’s NI rate will rise from 13.8% to 15%.
Scroll through to see Cliff’s staffing finances
Under the new system, an employer will be paying nearly £800 more in NICs annually for an employee earning around £23,800 (based on a 37.5-hour week at the new NLW).
The rise in NICs will be proportionally higher for employers of lower-paid workers. For example, they will pay around 7% for someone earning £9,000 a year and 3% for an employee on the NLW. But for someone earning £75,000 a year, employers will pay 2% more.
Extended employment rights and business rates add pressure
Labour also announced a series of employment rights reforms aimed at improving working conditions. These include extending statutory sick pay to lower-paid employees who were previously ineligible and making it available from the first day of illness for all workers.
The changes would also enable employees to claim unpaid parental leave from their first day in a job, strengthen protections against unfair dismissal, and enhance rights for those on zero-hours contracts.
The government estimates that these employment rights changes will cost businesses around £5bn.
Nye Cominetti, principal economist at the Resolution Foundation, said: “What concerns me is that employer national insurance increases, like the minimum wage and employment rights changes, disproportionately impact low-paid workers.
“For instance, extending statutory sick pay to those previously ineligible adds costs for employers already facing higher NICs and rising wages. In this context, it would have been more sensible to raise tax revenue in a way that didn’t hit low-paid workers the hardest.”
Cliff is having to abandon expansion plans due to budget changes
But for Cliff, the changes to business rates relief are an even bigger challenge. Budget changes will mean business rates relief will drop from 75% to 45% for retail, leisure, and hospitality businesses, significantly increasing his costs.
“The business rates changes probably have a bigger impact on us than national insurance,” he explained.
“One of our buildings used to be in a prime edge-of-town retail park 25 years ago. The rental value has dropped significantly since but business rates haven’t kept pace. Next year, we’ll be paying between £55,000 and £60,000 more just in business rates.”
Cliff is not alone in his concerns.
Research conducted by the Federation of Small Businesses found that in the final three months of last year, confidence among small firms fell to its lowest level in a decade, excluding the pandemic.
Are these changes impacting inflation?
Higher prices for food, goods, and services will also put pressure on working people.
New data from the Office for National Statistics shows that inflation rose to 3% in January 2025, the highest level in 10 months.
Many businesses had warned this would happen, saying that rising national insurance costs and the increase in the NLW would leave them with no choice but to raise prices.
The latest Quarterly Economic Survey by the British Chambers of Commerce, conducted after the budget, surveyed more than 4,800 businesses. It found that more than half expect to increase prices in the next three months, up from 39% in the third quarter of 2024.
Businesses are making tough decisions
Signs of pressure are already emerging.
Lord Wolfson, a Conservative peer and chief executive of Next, has warned that it will become harder for people to enter the workforce.
In an interview with the BBC, he said that the rise in NICs for businesses would hit the retail sector particularly hard, with entry-level jobs most affected.
He urged the government to phase in the tax changes rather than implement them in full in April, warning that otherwise, businesses would be forced to cut jobs or reduce working hours.
While it is not possible to fully attribute this to budget announcements, early data suggests that the workforce has been shrinking across various industries since October 2024, with the biggest declines in sectors that employ large numbers of lower-paid workers, such as manufacturing, retail, and hospitality.
Since the budget, the number of payrolled employees has fallen by more than 10,000 in manufacturing and nearly 9,000 in hospitality.
Since the budget, voluntary liquidations have remained consistently high and from December 2024 to January 2025 voluntary business closures have gone up by 9%.
While this can’t be solely attributed to upcoming budget measures, it does highlight the challenges businesses are facing and the difficult decisions they are making as a result.
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An HM Treasury spokesperson said: “We delivered a once-in-a-parliament budget to wipe the slate clean and deliver the stability businesses need to invest and grow, while protecting working people’s payslips from higher taxes, ensuring more than half of employers either see a cut or no change in their National Insurance bills, and delivering a record pay boost for millions of workers.
“Now we are going further and faster to kickstart economic growth and raise living standards, with a majority of business leaders confident that the chancellor’s plans will help drive business investment.
“This includes backing businesses to create wealth across Britain by capping corporation tax, making full expensing permanent and permanently cutting business rates for retail, hospitality, and leisure businesses on the high street from next year.”
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A household energy supplier has failed, weeks after it attracted attention from regulators.
Rebel Energy, which has around 80,000 domestic customers and 10,000 others, had been the subject of a provisional order last month related to compliance with rules around renewable energy obligations.
The company’s website said it was “ceasing to trade” but gave no reason.
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Industry watchdog Ofgem said on Tuesday that those affected by Rebel’s demise did not need to take any action and would be “protected”.
Customers, Ofgem said, would soon be appointed a new provider under its supplier of last resort (SoLR) mechanism.
This was deployed widely in 2021 when dozens of energy suppliers collapsed while failing to get to grips with a spike in wholesale energy costs.
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The last supplier to go under was in July 2022.
Ofgem said new rules governing supplier business practices since then had bolstered resilience.
These include minimum capital requirements and the ringfencing of customer credit balances.
The exit from the market by Bedford-based Rebel was announced on the same day that the energy price cap rose again to take account of soaring wholesale costs between December and January.
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Tim Jarvis, director general for markets at Ofgem, said: “Rebel Energy customers do not need to worry, and I want to reassure them that they will not see any disruption to their energy supply, and any credit they may have on their accounts remains protected under Ofgem’s rules.
“We are working quickly to appoint new suppliers for all impacted customers. We’d advise customers not to try to switch supplier in the meantime, and a new supplier will be in touch in the coming weeks with further information.
“We have worked hard to improve the financial resilience of suppliers in recent years, implementing a series of rules to make sure they can weather unexpected shocks. But like any competitive market, some companies will still fail from time to time, and our priority is making sure consumers are protected if that happens.”
Harrods is urging lawyers acting for the largest group of survivors of abuse perpetrated by its former owner to reconsider plans to swallow a significant chunk of claimants’ compensation payouts in fees.
Sky News has learnt that KP Law, which is acting for hundreds of potential clients under the banner Justice for Harrods, is proposing to take up to 25% of compensation awards in exchange for handling their cases.
In many cases, that is likely to mean survivors foregoing sums worth of tens of thousands of pounds to KP Law, which says it is working for hundreds of people who suffered abuse committed by Mohamed al Fayed.
Mohamed al Fayed. File pic: PA
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Under a redress scheme outlined by the London-based department store on Monday, which confirmed earlier reports by Sky News, claimants will be eligible for general damages awards of up to £200,000, depending upon whether they agree to a psychiatric assessment arranged by Harrods.
In addition, other payments could take the maximum award to an individual under the scheme to £385,000.
A document published online names several law firms which have agreed to represent Mr al Fayed’s victims without absorbing any of their compensation payments.
KP Law is not among those firms.
Theoretically, if Justice for Harrods members are awarded compensation in excess of the sums proposed by the company, KP Law could stand to earn many millions of pounds from its share of the payouts.
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‘Many more’ likely abused by Fayed
A Harrods spokesperson told Sky News on Tuesday: “The purpose of the Harrods Redress Scheme is to offer financial and psychological support to those who choose to enter the scheme, rather than as a route to criminal justice.
“With a survivor-first approach, it has been designed by personal injury experts with the input of several legal firms currently representing survivors.
“Although Harrods tabled the scheme, control of the claim is in the hands of the survivors who can determine at any point to continue, challenge, opt out or seek alternative routes such as mediation or litigation.
“Our hope is that everyone receives 100% of the compensation awarded to them but we understand there is one exception among these law firms currently representing survivors who is proposing to take up to 25% of survivors’ compensation.
“We hope they will reconsider given we have already committed to paying reasonable legal costs.”
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Further claims against al Fayed
Responding to the publication of the scheme on Monday, KP Law criticised it as inadequate, saying it “does not go far enough to deliver the justice and accountability demanded by our clients”.
“This is not solely a question of compensation but about justice and exposing the systematic abuse and the many people who helped to operate it for the benefit of Mohamed al Fayed and others.”
Seeking to rebut the questions raised by Harrods about its fee structure, KP Law told Sky News: “KP Law is committed to supporting our clients through the litigation process to obtain justice first and foremost as well as recovering the maximum possible damages for them.
“This will cover all potential outcomes for the case.
“Despite the Harrods scheme seeking to narrow the potential issues, we believe that there are numerous potential defendants in a number of jurisdictions that are liable for what our clients went through, and we are committed to securing justice for our client group.
“KP Law is confident that it will recover more for its clients than what could be achieved through the redress scheme established by Harrods, which in our view is inadequate and does not go far enough to compensate victims of Mr al Fayed.”
The verbal battle between Harrods and KP Law underlines the fact that the battle for compensation and wider justice for survivors of Mr al Fayed remains far from complete.
The billionaire, who died in 2023, is thought to have sexually abused hundreds of women during a 25-year reign of terror at Harrods.
He also owned Fulham Football Club and Paris’s Ritz Hotel.
Harrods is now owned by a Qatari sovereign wealth fund controlled by the Gulf state’s ruling family.
The redress scheme commissioned by the department store is being coordinated by MPL Legal, an Essex-based law firm.
Last October, lawyers acting for victims of Mr al Fayed said they had received more than 420 enquiries about potential claims, although it is unclear how many more have come forward in the six months since.
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